UPDATE 2: Nigeria holds interest rate for fifth consecutive time
Nigeria left its benchmark interest rate unchanged for a fifth consecutive meeting to balance lifting the economy out of its worst slump in 25 years with fighting inflation that’s at almost double the government’s target.
Eight out of ten members of the Monetary Policy Committee (MPC) voted to hold key rates at today’s meeting, according to Godwin Emefiele, the Central Bank Governor and chair of the MPC. One member was however absent.
Benchmark interest rate was retained at 14 percent, while the cash reserve ratio and liquidity ratio were held at 22.5 percent and 30 percent respectively, in line with analysts’ expectations in a BusinessDay poll.
“The downward trend in inflation is a welcome development, but remains higher than our reference rate,” Emefiele observed. However, “Further tightening will widen the income gap and stifle credit to the real sector,” Emefiele said as he explained considerations made before deciding to hold policy rates.
Inflation slowed marginally to 17.24 percent in April, from 17.26 percent in March, while the monthly index rose 1.6 percent, decelerating from 1.7 percent. The index well exceeds the target range of 6 percent to 9 percent.
“The CBN has made the logical decision to maintain key interest rates at 14% as the nation stabilizes and continues its ongoing quest to diversify beyond relying on oil exports,” said Lukman Otunuga, a research analyst at forex brokerage firm, FXTM.
“With Nigeria’s GDP for the first quarter of 2017 still in recessionary territory, the damage of depreciating oil prices still lingers on with social economic issues, soft domestic data and inflation exposing the nation to downside risks,” Otunuga told BusinessDay by email.
The MPC met few hours after the NBS report showed that Q1 GDP contracted 0.5 percent in the first quarter of 2017.
According to Emefiele, “The Committee is also pleased with the exchange rate stability in the last two months and the improved prospect of foreign investment,” following the introduction of the Investor and Exporter window which has helped boost investor sentiments.
The said I &E window is said to have handled over $1 billion since it was introduced on April 20.
“In all fairness, the CBN deserves a pat on the back with the improvements made in the foreign exchange market,” said Bayo Adeyemo, markets head and country treasurer at Citi Bank. “The window is critical for more investment flows.”
The apex bank governor expressed confidence that the country’s fiscal stimulus will boost growth in the near term.
Nigerian lawmakers approved a 21 percent increase to the 2017 budget of N7.4 trillion in May, as the country seeks to spend its way out of recession.
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